Ebook Food and beverage cost control (Third edition): Part 2

Continued part 1, part 2 of ebook Food and beverage cost control (Third edition) provide readers with content about: managing the cost of labor; controlling other expenses; analyzing results using the income statement; planning for profit; maintaining and improving the revenue control system; using technology to enhance control systems;... Please refer to the ebook for details!

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OVERVIEW

Chapter

MANAGING THE CosT oF LABOR

This chapter details the techniques used to control costs by establishing and monitoring labor cost standards The factors that affect labor productivity, as well as methods for improving labor productivity, are presented The chapter teaches you how to schedule employees based on established labor standards, as well as how to compute the labor cost percentage and other measures of labor productivity

CuapTeR OUTLINE

HIGHLIGHTS

Labor Expense in the Hospitality Industry Evaluating Labor Productivity

Maintaining a Productive Workforce Measuring Current Labor Productivity Managing Payroll Costs

Reducing Labor-Related Costs Apply What You Have Learned, Key Terms and Concepts Test Your Skills

At the conclusion of this chapter, you will be able to: © Identify the factors that affect employee productivity © Develop appropriate labor standards and employee in a foodservice operation O Analyze and evaluate actual labor utilization schedules for use

Labor Expense in the Hospitality Industry

Having the correct amount of food and beverage products in the operation to serve guests is important Knowing how those products should be prepared

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274 CHAPTER Z MANAGING THE 0ST 0F LRB0R

is vital also, Consider, however, the case of Pauline She manages the cafeteria of a large urban hospital Both hospital staff and patients’ visitors, who constitute the majority of her guests, have good things to say about the quality of her food Th omplain often, however, about the slowness of her cafeteria line, the dirty tables during the busy lunch hour, and the frequent running out of items on both the beverage and the salad bars Pauline often feels that she needs more employees She knows, however, that her current staff is actually larger than it was a few years ago Of course, she also serves more guests each day Her question is: “Do I have the right number of employees scheduled at the right times for the number of guests I anticipate today?” Unfortunately, Pauline is so busy “helping” her employees get through the meal periods that there seems to be little time for thinking and planning about the strategies and techniques she will have to apply if she is to solve her labor-related customer service problems In years past, when labor was relatively inexpensive, Pauline might have responded to her need for more workers by simply hiring more employees Today’s foodservice manager, however, does not have that lux- ury In the current tight and increasingly costly labor market, you will need to learn the supervisory skills to motivate your current staff, as well as the cost control skills required to effectively evaluate their efforts

At one time, labor-related expenses were much less important to the foodservice manager than they are today In some foodservice establish- ments, the cost of labor actually exceeds the cost of food and beverage products Today’s competitive workforce would indicate that future foodservice managers might well find it even more difficult to recruit, train, and retain an effective cadre of employees Therefore, the control of labor expenses takes on a greater level of importance than ever before In some sectors of the foodservice industry, a reputation for long hours, poor pay, and unde- sirable working conditions has caused quality employees to look elsewhere for a more satisfactory job or career It does not haveeto be that way, and it is up to you to help ensure that in your organization it is not When labor costs are adequately controlled, management has the funds necessary to create both desirable working conditions and pay a wage necessary to attract the very best employees the labor pool has to offer In every service industry, better employees mean better service and, ultimately, better profits

Labor Expense Defined

“Payroll” is the term generally used to refer to the salaries and wages you will pay your employees Labor expense includes salaries and wages, but it also includes your other labor-related costs In addition to salaries and wages, the following expenses are also related to employees and, thus, are considered labor expenses:

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Labor Expense in the Hospitality Industry 275 3 Workers’ compensation 4 Group life insurance 5 Health insurance 6 Pension/retirement plan payments 7 Employee meals 8 Employee training expenses 9 Employee transportation

10 Employee uniforms, housing, and other benefits

11 Vacation/sick leave/personal days

12 Tuition reimbursement programs

15 Employee incentives and bonuses

Not all foodservice units will incur all of the preceding costs Some will have additional costs You can be sure, however, that regardless of the

facility you manage, you will incur some labor-related expenses in addition to payroll costs The critical question you must answer is similar to

the one posed by Pauline in the previous example: “How much should | spend on payroll and labor expense to provide the quality of products and service that I feel is appropriate?” Before you can hope to answer that

question, it is important that you fully understand the components of pay-

roll and labor expense Payroll

Payroll refers to the gross pay received by an employee in exchange for his or her work That is, if an employee earns $8.00 per hour and works

40 hours for his or her employer, the gross paycheck (the employee's pay

check before any mandatory or voluntary deductions) would be $320 ($8.00 per hour x 40 hours = $520) This amount is considered a payroll

expense

If the employee earns a salary, that salary amount is also a payroll expense A salaried employee generally receives the same income per

week or month regardless of the number of hours worked Thus, if a

salaried employee is paid $500 per week when he or she works 40 hours

or more in a week, we consider that $500 part of the payroll expense Pay-

roll, then, is one part of labor expense

Fixed Payroll versus Variable Payroll When you manage a foodservice

facility, you must make choices regarding the number and type of employees you will hire to help you serve your guests Some employees are needed simply to open the doors for minimally anticipated business as, for

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276 cHaPTER 7 MBNRGINS THE 0ST 0E LRB0R

Suppose, however, that you anticipate much greater volume on a given day The increased number of guests expected means that you must have more cooks, more servers, added cashiers, more dishroom personnel, and, perhaps, more supervisors to handle the additional workload Clearly, these additional staff positions create a work group that is far larger than the minimum staff, but is of a size that you feel is needed to adequately service the anticipated number of guests

Some managers confuse the minimum-staff concept with that of fixed payroll and variable payroll Fixed payroll refers to the amount an operation pays in salaries This amount is fixed in that it remains un- changed from one pay period to the next unless the individual receiving the pay separates employment from the organization Variable payroll consists of those dollars paid to hourly employees Thus, variable payroll is the amount that “varies” with changes in volume Generally, as you anticipate increased volume levels in your facility, you may need to add additional hourly, and sometimes, salaried employees The distinction between fixed and variable labor is an important one, since you may sometimes have little control over your fixed labor expense, while, at the same time, exerting nearly 100% control over variable labor expenses that are above your minimum-staff levels

Labor Expense

Labor expense refers to the total of a// costs associated with maintaining your workforce As such, labor expense is always larger than payroll expense As the cost of providing employee benefits increases or employment taxes go up, labor expense will increase, even if payroll expense remains constant

Most foodservice operators have total control over their payroll expense It is, therefore, often referred to as a “controlfable” labor expense Those labor expenses, on the other hand, over which an operator has little or no control are called “noncontrollable” labor expenses These expenses include items such as federal- or state-mandated payroll taxes, insurance premiums, and retirement plan payments In reality, however, you can exert some control even over these noncontrollable labor expenses as, for example, a foodservice manager who works very hard to ensure a well-trained workforce in a safe environment and achieves, thereby, a lower rate on accident and health insurance for his or her employees

In this chapter, we deal primarily with payroll-related expenses This is in keeping with the concept that these are the most controllable of our labor-related expenses, and the ones most managers will evaluate when they are called upon to control labor expenses

In order to determine how much labor is needed to operate the business, a foodservice manager must be able to determine how much work each fixed and variable employee can perform If too few employees are

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Evaluating Labor Productivity 277

scheduled on any given day, poor service and lack of sales can result, as guests go elsewhere If too many employees are scheduled, payroll and other labor expenses will be too high for the day, resulting in reduced

profits The solution is to know how many employees are required given the estimated number of guests anticipated on any given day In order to determine this number of employees, you must have a clear idea of the productivity of each of your employees Productivity, simply put, is the amount of work performed by an employee in a fixed period of time

Evaluating Labor Productivity

There are many ways to assess labor productivity In general, productivity

is measured in terms of the productivity ratio as follows:

Outputs Productivity Ratio Input

Take, for example, a restaurant in which four servers are employed to serve 60 guests Using the productivity ratio formula, the output is guests served, the input is servers employed, as follows:

60 Guests Nghi 15 Guests per Server

This formula demonstrates that, for each server employed, 15 guests can be served The productivity ratiotis one server per 15 guests (1/15) or, stated another way, 15 guests to one server (15 to 1)

There are several w of defining foodservice output and input;

thus, there are several types of productivity ratios Some of these are pre-

sented later in this chapter All of these productivity ratios are helpful in

determining the answer to the question, “How much should | spend on labor?” The answer, however, is more complicated than it might seem at first glance In the preceding example, you know that, on average, one server can serve 15 guests But how many guests will a slow server serve? How about your best server? How much do we pay for our best server? Our poorest? Are you better off scheduling your best server if you anti pate 20 guests or should you schedule two of your slower servers? How

can the slower server be developed into an above-average server? At what cost? These are the types of questions that must be answered daily if you are to effectively manage payroll costs These costs can, however, be managed Each foodservice operator must develop his or her method for

managing payroll because each foodservice unit is different Consider the

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278 cHapter 7 MaNaGiNe THE Cost oF LaBor

differences between managing payroll costs at a small, quick-service food kiosk in a shopping mall and a large banquet kitchen in a convention hotel While the actual application of the methods may vary, payroll costs can be controlled in any foodservice operation you may manage

Maintaining a Productive Workforce

Before we discuss how to establish and use productivity ratios, however, it is important to examine the factors that make employees more productive and, thus, directly affect productivity The following are 10 key employee-related factors that affect employee productivity: Ten Key Factors Affecting Employee Productivity Employee selection Training Supervision Scheduling Breaks Morale Menu Convenience versus scratch preparation Equipment Service level desired SLenaentsane = Employee Selection

Choosing the right employee from the beginning is vitally important in developing a highly productive workforce Good foodservice managers know that proper selection procedures go a long way toward establishing the kind of workforce that can be both efficient and effective This involves matching the right employee with the right job The process begins with the development of the job description

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Maintaining a Productive Workforce 279 FieURE 7.1 Job Description Job Description Unit Name: Thunder Lodge Resort Position Title: Room Service Delivery Person Primary Tasks: 1, Answer telephone to receive 7 Balance room service cash drawer guest orders 2 §et up room service trays 8 Clean room service setup area

in_steward area at conclusion of shift 3 Deliver trays to room, as requested 9 Other duties, as assigned by

supervisor

4 Remove tray covers upon delivery 10

5 Remove soiled trays from floors 11

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280 CHAPTER 7 ManaGine THE Cost oF LaBor

Job Specification A job specification is a listing of the personal characteristics needed to perform the tasks contained in a particular job description Figure 7.2 shows the job specification that would match the job description in Figure 7.1

As can be seen, this position requires a specific set of personal char-

acteristics and skills When a room service delivery person is hired, the

job specification requirements must be foremost in management's mind

If the job specs do not exist or are not followed, it is likely that employees may be hired who are simply not able to be highly productive Each employee must bring either the skills necessary to do the job or the ability to acquire those skills It is your role to develop and maintain both job de- scriptions and job specifications so that employees know what their jobs are, and you know the characteristics that your employees must have, or be trained in, to do their jobs well When actually beginning to select employees for your vacancies, you will likely use one or more of the following selection aids: Applications Interviews Preemployment testing Background/reference checks Sane

Applications The employment application is a document completed by the candidate for employment It will generally list the name, address, work experience, and related information of the candidate It is important that each employment candidate for a given position be required to fill out an identical application, and that an application be on file for each candidate who is ultimately selected for the position

Interviews From the employment applications submitted, you will se-

lect some candidates for the interview process It is important to realize that the types of questions that can be asked in the interview are highly re- stricted This is because job interviews, if improperly performed, can subject an employer to legal liability If a candidate is not hired based on his or her answer to—or refusal to answer—an inappropriate question, that candidate has the right to file a lawsuit The Equal Employment Opportu-

nity Commission suggests that an employer consider the following three

questions in deciding whether to include a particular question on an employment application or in a job interview:

1 Does this question tend to screen out minorities or females?

2 Is the answer needed in order to judge this individual’s competence

for performance of the job?

3 Are there alternative, nondiscriminatory wa

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Maintaining a Productive Workforce 281

FieUaE 7.2 Job Specification

Job Specification

Unit Name: Thunder Lodge Resort Position Title: Room Service Delivery Person Personal Characteristics Required:

1 Good telephone skills; clear, easily understood English

2 Ability to operate cash register 3 Detail oriented 4 Pleasant personality 5 Discreet

Special Comments: Good grooming habits are especially important in this

position as employee will be a primary guest contact person

Job Specification Prepared By: Matt V

In all cases, questions asked both on the application and in the interview

should focus on the applicant’s job skills and nothing else

Preemployment Testing Preemployment testing is a common way to help improve employee productivity In the hospitality industry, preemployment testing will generally fall into one of the following categories:

1 Skills tests

2 Psychological tests

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282 cuapTeR 7 MANAGING THE Cost oF LaBor

Skills tests can include activities such as typing tests for office employees, computer application tests for those involved in using word pro- cessing or spreadsheet tools, or food production tasks, as in the case of chefs Psychological testing can include personality tests, tests designed to predict performance, or tests of mental ability

Preemployment drug testing is used to determine if an applicant uses drugs It is allowable in most states, and can be a very effective tool for reducing insurance rates and potential employee liability issues It is permissible to ask an applicant if he or she uses drugs It is also allowable to ask candidates if they are willing to submit to a voluntary drug test as a condition of employment Of course, potential employees have a right to refuse to submit to a drug screening test, just as you have a right to insist that all prospective employees submit to such a test The important point to remember is that, if you are using drug screening, it must be used on all employees and not just those you may suspect of drug use To selec- tively, rather than uniformly, require drug screening could place you and your organization in legal jeopardy if you were subject to charges of discrimination

A drug-free environment tends to attract better quality employment candidates, with the resulting impact of a higher quality workforce with greater productivity Most hospitality companies find that drug testing as a preemployment screening device not only boosts employee productivity, but reduces job-related accidents as well

Background/Reference Checks Increasingly, hospitality employers are utilizing background checks prior to hiring employees in selected positions Common verification points include the following: Name Social security number Address history Dates of past employment and duties performed Education/training Criminal background ©OCGOGO

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required to sign a consent form authorizing you to conduct the back-

ground check

In the past, employment references were a very popular tool for

managers to use in the screening process In today’s litigious society, however, they are much more difficult to obtain While many organizations still seek information from past employers about an employee’s previous work performance, few sophisticated companies will divulge such infor-

mation To help minimize the risk of litigation related to reference checks,

itis best to secure the applicant’s permission in writing before contacting

an ex-employer Even with such authorization, however, many employers

are reluctant to give out information about former employees Verification of such application entries as dates of employment and duties performed can be helpful to you in making decisions about the potential “fit” and, thus, productivity of a potential employee

The advertising for, interviewing of, and selection of the right em-

ployee for the right job is a specialized area of human resources, and you will often be able to rely on a human resources department in your organization for assistance when undertaking this important task Selection

of employees is, in the final analysis, critically important in creating a pro-

ductive workforce in your facility

Training

Perhaps no area under your control holds greater promise for increased

employee productivity related to current employees than improvement

through training In fact, the human being is the only asset we can expand without spending money In too many cases, however, training in the hospitality industry is poor qr almost nonexistent Highly productive employees are well-trained employees, and, frequently, employees with low productivity are poorly trained Every position in a foodservice operation should have a specific, well developed, and ongoing training

program Effective training will improve job satisfaction and instill in

employees a sense of well-being and accomplishment It will also reduce confusion, product waste, and loss of guests In addition, supervisors

find that a well-trained workforce is easier to manage than one in which

the employees are poorly trained An additional advantage of a well-

trained workforce is that management will be more effective because

of reduced stress, in terms of both work completion and interpersonal relationships

Effective training begins with a good orientation program The following list includes some of the concerns that most employees have when they start a new job You should identify which items are relevant to your

new employees, and take care to provide information in each area, in

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284 cuapTeR 7 ManaGine THE Cost oF LaBor

Orientation Program Information 1 Payday 16 Lockers/security Annual performance review 17 Jury duty 3 Probationary period 18 Leave of absence 4 Dress code 19 Maternity leave

5 Telephone call policy 20 Alcohol/drug policy

6 Smoking policy 21 Employee assistance programs

7 Uniform allowance 22 Tardy policy

8 Disciplinary system 23 Sick leave policy

9 Educational assistance 24 Vacation policy

10 Work schedule 25 Holidays and holiday pay

11 Mandatory meetings 26 Overtime pay

12 Tip policy 27 Insurance

15 Transfers 28 Retirement programs

14 Employee meal policy 29 Safety/emergency procedures

15 Sexual harassment policy 30 Grievance procedures

Most employees truly want to do a good job for their employer To achieve this, most employees look forward to and enjoy participating in training sessions Managers who like to train tend to find themselves with motivated employees Managers who, on the other hand, ke or can find no time for training usually encounter less productive, less motivated individuals

Training programs need not be elaborate They must, however, be

continual Hospitality companies can train in many different areas Some training seeks to influence attitudes and actions as, for example, when training to prevent work-related harassment is presented In other cases, training may be undertaken to assist employees with stress or other psy- chologically related job aspects In most cases, howéver, the training you will be responsible for as a unit manager is task training Task training

is the training undertaken to ensure an employee has the skills to meet productivity goals The development of a training program for any task in-

volves the following:

Determine how the task is to be done

Plan the training session Present the training session

Evaluate the session’s effectiveness

Retrain at the proper interval

earns

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Maintaining ø Productive Workforce 285

specific procedures that must be followed so that both cooks and

cashiers can receive the guest’s order and process it properly When management has determined how a task should be completed, that method should be made part of the training program and should be

strictly maintained unless a better method can be demonstrated If this

is not done, employees will find that “anything goes,” and product con- sistency, along with service levels, will vary tremendously Employees watch management very carefully If management is not diligent in the enforcement of standard operating procedures (SOPs), employees may perform tasks in a manner that is easiest for them This may, of cours not be the manner that is best for your operation This is not to under- estimate the value of employee input in job design They should cer- tainly have input into the execution of a task, but once management has made the decision to follow a certain procedure, it must be communicated and enforced This enforcement is best done through a positive ap- proach Managers should focus less on people who are “doing it wrong” than on those who are “doing it right” Positive reinforcement and praise, as well as rewarding employees for a job well done, are power- ful management tools since most employees truly want to be recognized by management for that good job

Plan the Training Session Like any other important management te the training session must be planned This includes asking and appropri-

ately answering the following questions:

Who should be trained?

Who should do the training? Where should the training occur?

When should the session occur?

What tools, materials, or supplies are needed to conduct the session?

What should the length of the session be? 7 How frequently should the sessions occur?

» How and where will the attendance and completion records

regarding each training session offered be kept? Srousane

Good training sessions are the result of a felt need by management to train personnel, matched with a management philosophy that training is important Taking time to effectively plan the training session is a good

way for you to let employees know that you take the training process seri- ously Whether the training session is a video, a demonstration, or a lec- ture/presentation, time spent planning the session is time well spent Present the Training Session Many managers feel that they have no

time for training But management is about teaching, encouraging, and

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286 ©HAPTER 7 MANAGING THE CosT oF LaBoR

time each week to conduct a formal training session Some managers maintain that all of the training in their unit must be of the OJT type (on-

the-job training) They feel that structured training either takes too long or is inappropriate In nearly all cases, this is incorrect and is a major cause

of the rather low rate of productivity so prevalent in parts of the hospital-

ity industry

The best training sessions are presented with enthusiasm and an at-

titude of encouragement Make sure that training is presented not because employees “don’t know,” but rather because management wants them to “know more.’ Involve employees in the presentation of training exercises Seek their input in the sessions Ask questions that encourage discussion, and always conclude the sessions on a positive note

A brief, but effective, outline for each session could be as follows:

Tell the employees what you hope to teach them and why Present the session

Reemphasize main points and discuss why they are important Ask for questions to ensure understanding

Powe

Evaluate the Session’s Effectiveness There is a saying in education that “if the student hasn’t learned, then the teacher hasn’t taught” This concept, when applied to hospitality training, implies that presenting a training session is not enough Training should cause behavior to change Ei- ther employees improve or gain a new skill, knowledge, or information, or they have not learned If you are to know which of these is the case, you

must evaluate the training session This can be as simple as observing employee behavior (to test skill acquisition) or as detailed as preparing written questions (to test knowledge retention)

Posttraining evaluation should also be directed at how the sessions were conducted Were they too long? Planned well? Delivered with the ap-

propriate attitude? The evaluation of training is as important as its delivery Both the content of the session and the delivery itself should be eval-

uated The bottom line, of course, is changed behavior A workforce that is

trained well is more productive In fact, employees who are well trained are both more productive and more highly motivated

Retrain at the Proper Interval Few 35-year-old foodservice managers could walk into a room, sit down, and pass, with a good grade, the algebra final they took in high school some 18 or so years earlier Why is that? The answer is not that they did not learn algebra Clearly, they knew the

answers at one time Humans, however, do not learn and then remain stagnant We learn, unlearn, and relearn on a regular basis The telephone

number we knew so well 10 years ago is now gone from memory The

friend or teacher’s name we knew we would never forget is forgotten In

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level is to remain high Declines in performance levels can come about through a change in the operational systems you have in place or changes

in equipment used When this is true, you must retrain your employees Nearly every operating foodservice manager can remember an instance when the conversation went something like this:

SUPERVISOR: “lex, I thought I told you to ”

ALEX: “I did!”

SUPERVISOR: “Yes, you did it, but you did it wrong That's not how we

do it here!”

ALEX: “Oh yeah, I forgot! I'll get it right next time.”

SUPERVISOR: “Good! Make sure you do!”

The point is that, without a regular retraining program, Alex will not

get it right the next time It matters little whether Alex never got the cor-

rect training, or whether he got it but has now forgotten what he had learned Conversations like this are a sure sign that effective training ses-

sions are not in place on a regular basis

Training a workforce is one, if not the best, method of improving employee productivity Effective training costs a small amount in time in the short run, but pays off extremely well in dollars in the long run The managers who have risen to the top in the hospitality industry have some specific characteristics and traits Chief among these is their desire to teach and encourage their employees and, thus, get the best results from each and every one of them

Supervision

All employees require proper supervision This is not to say that all employees desire to have someone tell them what to do Proper supervision means assisting employees in improving productivity In this sense, the supervisor is a helper and facilitator who provides assistance Supervising should be a matter of assisting employees to do their best, not just identi- fying their shortcomings It is said that employees think one of two things

when they see their boss approaching:

1 Here comes help!

or

2 Here comes trouble!

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288 cuapTeR 7 MANAGING THE 0ST 0F LRB0R

employee, not management, who services the guest When supervision is geared toward helping, the guest benefits and, thus, the operation benefits This is why it is so important for managers to be on the floor, in other

words, in the dining area, during meal periods The foodservice manager

is, in the final analysis, the individual in the best position to see what must be done to satisfy the guest This means being where the action is when meals are served Greeting guests, solving bottheneck problems, maintaining food quality, and ensuring excellent service are all tasks of the foodservice manager during the service period When employees see that management is committed to customer service and is there to assist employees in delivering that service, their productivity will improve Again,

most employees want to please both the guest and the boss When both can be pleased at once, productivity rises If employees feel that they can only satisfy the guest or the operation, difficulties will arise

Consider, for example, the employee who has been instructed to serve one 2-ounce portion of tartar sauce with a particular fried fish dinner When she does so, she finds that 80% of the guests request a second portion of the tartar sauce If management does not respond to this consumer demand and adjust the portion size, the employee is faced with a difficult choice: “Do I satisfy management (serve one portion) or the guest (serve two portions)?” Clearly, situations such as this can, and do, occur, but they must be resolved by management Good managers do this by in- volving themselves closely with the work of their employees

This does not mean that the supervisor does the employees’ work,

but rather that employees know that they can go to management with

their problems or, better yet, that they can say: “Here comes help” when

they see the boss approaching

Scheduling

Even with highly productive employees, poor employee scheduling by management can result in low productivity ratios Consider the example in Figure 7.3, where management has determined a schedule for pot-

washers in a unit that is open for three meals a day

In Schedule A, four employees are scheduled for 32 hours at a rate of $8.00 per hour Payroll, in this case, would be $256 per day (32 hours/ day < $8.00/hour = $256/day) Each shift, breakfast, lunch, and dinner, has two employees scheduled

In Schedule B, three employees are scheduled for 24 hours At the same rate of $8.00 per hour, payroll would be $192 per day (24 hours/ day x $8.00/hour = $192/day) Wages, in this case, are reduced by $64 ($256 — $192 = $64), and further savings will be realized due to reduced benefits, employee meal costs, and other labor-related expenses Schedule A assumes that the amount of work to be done is identical at all times of the day Schedule B covers both the lunch and the dinner shifts with two

employees, but assumes that one potwasher is sufficient in the early-

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When scheduling is done to meet projected demand, productivity ra-

tios will increase If production standards are to be established and mon- itored, management must do its job in ensuring that employees are scheduled only when needed to meet the sales or volume anticipated Returning to our formula for computing the productivity ratio, assume that 600 pots are to be washed and that four rather than three potwashers are scheduled to work Figure 7.4 shows the effect on the productivity ratio of dif-

ferent scheduling decisions

Proper scheduling ensures that the correct number of employees is available to do the necessary amount of work If too many employees are scheduled, productivity ratios will decline If too few employees are scheduled, customer service levels may suffer or necessary tasks may not be completed on time or as well as they should be

Work in the foodservice operation tends to occur in peaks and valleys, and the foodservice manager is often faced with uneven demands regarding the number of employees needed Different days of the week may require different levels of staffing In a hotel restaurant, for example, the slow period might be a weekend when most business travelers are at home rather than in the hotel In an upscale restaurant, on the other hand, the slow period may be during the week h volume picking up on the weekends For the weekend increase in business, the manager

might hire part-time employees to handle the higher volume To further complicate matters, some operations are faced with seasonal variations

In a college dining hall, the summers may be slow, while a beach resort may be extremely busy during that time The manager at the beach resort might hire seasonal employees to meet increased demand Demand can

also vary from hour to hour, since people in the United States tend to eat in three major time periods In some restaurants with a busy lunch, 5

cooks and 15 servers may be necessary At 3:00 in the afternoon at the

same restaurant, one cook and one server may find themselves with few

guests to serve

Scheduling efficiency during the day can often be improved through the use of the split-shift, a technique used to match individual employee work shifts with peaks and valleys of customer demand In using a split

shift, the manager would require an employee to work a busy period, for

example, lunch, then be off in the afternoon, only to return for the busy dinner period

Employee scheduling in the hospitality industry is difficult It is important, however, that it be done well Productivity standards help the foodservice operator match workload to the number of employees required FUN ON THE WEB!

Look up the following sites to view companies that sell software de-

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292 CHAPTER 7 MANAGING THE Cost oF LaBoR

Ficure 7.4 Effect of Scheduling on Productivity Ratios

Number of Pots Number of Potwashers

to Be Washed Scheduled Productivity Ratio 600 4 150 pots/washer 600 3 200 pots/washer

www.alohapos.com Once into the home page, click on “Products,” scroll down and select “Labor Scheduler” under the Aloha Back-

Office category to learn about this software’s features Have some fun, and try the demo!

www.foodsoftware.com Click on “Restaurant Computer Products Catalog,” then click on “Catalog” Next, click on “Employee Scheduling” to review “Schedule Writer,” this company’s software program designed to help develop employee schedules www.shiftschedules.com Click on “Products” to choose demon-

strations of a variety of Excel spreadsheet-based employee

scheduling systems

Breaks

Employees cannot work at top speed for eight hours straight They have both a physical and a mental need for breaks from their work These breaks give them a chance to pause, collect their thoughts, converse with their fel- low employees, and, in general, prepare for the next work session As management, the foodservice supervisor must determine both the frequency and the length of designated breaks In some cases, especially regarding the employment of students and minors, both federal and state law may man- date breaks for employees; as a manager, you will need to know these laws Employees need to know that management cares enough about them to establish a break schedule and then maintain it Of course, employees must be prepared to alter their break schedule when the workload requires it Short, frequent breaks have been shown to increase employee productivity and morale Management should not view breaks as lost or wasted time; instead, they should be viewed as a necessary part of main-

taining a highly productive workforce The truth is that employees who are given frequent, short breaks will outproduce those who are not given

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begrudge their staff the breaks that are so beneficial to the organization, as well as to the employee

Morale

Employee morale is not often mentioned in a discussion about controlling foodservice costs Yet, as experienced managers will attest, it is impossible to overestimate the financial value of a highly motivated employee or crew While it is a truism that employees motivate themselves, it is also true that effective managers provide an environment that makes it easy for employees to want to be motivated Management creates this environment History is filled with examples of groups who have achieved goals that seemed impossible because they were highly motivated Serving people should be fun It should be exciting If this sense of fun and excitement can be instilled in each employee, work also becomes fun and exciting

Volumes have been written about the manner in which managers can create a highly motivated workforce It is the authors’ opinion, however, that those work groups with high morale share a common trait In general, these groups work for a manager or management team that has the following characteristics:

1 Management has created a vision

2 The vision is constantly communicated to employees

3 The vision is shared and embraced by both management and employees

Creating a vision is nothing more than finding a “purpose” for the workforce Any manager who communicates that the purpose for a potwasher is simply to clean pots cannot expect to have a fired-up, turned-on employee Yet, potwashers can have high morale They can be a critical part of management’s overall purpose for the work crew Consider, for purposes of illustration, some of the following techniques you could use to communicate a customer service vision to potwashers:

1 If your unit has been, as it should be, free from cases of foodborne illness, part of the credit goes to your potwashing staff Recognize them for this achievement on a quarterly basis

2 Conduct regular “potwashing station inspections.” Score the area for cleanliness on a scale of 1 to 100 Present each potwasher with a certificate when the area score exceeds 90 If it does not exceed 90, increase training until it does!

3 Recognize your “best” potwasher at an annual employee recognition luncheon or dinner for:

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294 cuapTeR 7 MANAGING THE Cost oF LABOR

c Cleanest work area d Most improved

e Most thorough

f Most often in proper uniform

4 Include a potwasher on your safety committee Publicly recognize all

committee members on a regular basis

5 Make ita point to go to the potwashing area on a daily basis to thank

those employees for a job well done Emphasize the importance of

their efforts

6 Encourage food production employees (your potwashers’ customers) to take the time to thank the potwashers for their contribution to the

food production process

If the purpose or vision that management creates is only financial

profit for the organization or owners, employees will rarely share the vi-

sion, even if it is strongly communicated If management's vision, however, includes the vital importance of each employee, each employee can

share that vision This vision might be to be the number one unit in sales

volume, or the unit with the highest percentage sales increase, or the unit with the lowest food cost or most meals served Whatever management's

vision for the unit, it must be communicated to the employees with a sense that they can share and benefit from its pursuit A shared purpose between management and employee is important for the development and

maintenance of high morale It is just not enough for management to feel

that employees should be “glad to have a job? This type of attitude by management results in high employee turnover and lost productivity

Employee turnover is high in some sections of the hospitality industry By some estimates, it exceeds 200% per year You can measure your turnover by using the following formula: Number of Employees Separated Empl Tu Rate ee Ol Aa O/ Co CD H0 Ne Number of Employees in Workforce

For example, assume that you have a total of 50 employees in your

foodservice operation In the past year, you replaced 35 employees Your

turnover rate is computed as follows:

55 Employees Separated _

50 Employees in Workforce NERS

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Separated is the term used to describe employees who have either quit, been terminated, or in some other manner have “separated” themselve from the operation The number of employees in the workforce is com-

puted by adding the number of employees at the beginning of the ac-

counting period to the number of employees at the end of the accounting period, and dividing the sum by two The number of employees in the

workforce, then, refers to the average number of people employed by the

operation during a given time period

Some foodservice operators prefer to distinguish between voluntary separation and involuntary separation A voluntary separation is one in

which the employee made the decision to leave the organization This may

be due, for example, to retirement, a better opportunity in another organization, or relocation to another state An involuntary separation is one

in which management has caused the employee to separate from the or-

ganization This may have been, for example, firing the employee because of poor attendance, violation of procedures or policy, or a reduction in

workforce Some managers want to know the amount of turnover that is

voluntary as opposed to involuntary For example, excessively high volun-

tary turnover rates may be a signal that wages and salaries are too low to keep your best employees High involuntary turnover rates may mean that employee screening and selection techniques may need to be reviewed and improved

If itis your preference, you can modify the turnover formula to create these two ratios: Involuntary Employee Turnover Rate

_ Number of Employees Involuntarily Separated Number of Employees in Workforce Voluntary Employee Turnover Rate

Number of Employees Voluntarily Separated Number of Employees in Workforce

Whether separation is involuntary or voluntary, turnover is expen-

sive Employee turnover costs you in terms that are both actual and hidden Actual costs, such as those involved in advertising the vacancy, relocation costs, interviewing and training time, and record keeping, are easy to determine The hidden costs are harder to quantify, but can cost dearly

in an operation with high turnover rate Increased dishroom breakage

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296 cHAPTER 7 MANAGING THE CosT oF LABOR

or a new cook may cause an increase in improperly prepared food Good

foodservice managers calculate and closely monitor their turnover rates High turnover rates mean trouble Low rates mean that employees feel good about the operation they work for

To counteract the turnover syndrome, management can decide to be

smart It can seek to create job satisfaction by providing a healthy environment and wholesome working conditions It can develop and train a strong and loyal workforce that will be willing and committed to work under many different conditions, some pleasant, some less so If the understanding between management and the workforce is established over

time, on good faith, the relationship will transcend and exceed the mone- tary value attached to the job and allow for the establishment of a committed, dependable, and permanent staff

A belief that both managers and employees share a common vision, and a noble one at that, creates the kind of environment that yields high

employee productivity and morale and reduced turnover rates, which will result in your staff providing excellent service to your guests

Menu

A major factor in employee productivity is the foodservice operation’s actual menu The items that you elect to serve on your menu will have a pro- found effect on your employees’ ability to produce the items quickly and efficiently

In general, the more variety of items a kitchen is asked to produce, the less efficient that kitchen will be Of course, if management does not

provide the guest with enough choices, loss of sales may result Clearly, neither too many nor too few menu choices should be offered The question for management is, “How many are too many?” The answer depends

on the operation, the skill level of employees, and the level of variety management feels is necessary to properly service the guests

Menus that continue to grow and grow cost in other ways as well

The quick-service unit that elects to specialize in hamburgers can prepare them quickly and efficiently If the same restaurant decides to add pizza, tacos, salads, and fried chicken, its management may find that not only are employees less productive, but guests are confused as to what the op-

eration really is Again, the dilemma management faces is to serve the

widest variety possible, but not so many things as to markedly reduce employee productivity

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tant to radically change their product offerings Thus, it is extremely important that the menu items selected by management are items that can be prepared efficiently and well If this is done, productivity rates will be high, as will guest satisfaction

Convenience versus Scratch Preparation

Few, if any, foodservice operators today make all of their menu items from scratch Indeed, there is no real agreement among operators as to what “scratch cooking” is Canned fruits, frozen seafood, and prebaked pastries are examples of foods that would not be available to many guests if it were not for the fact that they were processed to some degree before they were delivered to the foodservice operator’s door At one time, presliced white bread was considered a convenience item Today, this is considered a sta- ple Some foods, like canned cheese sauce, can be modified by the operator to produce a unique item This can be done by the addition of special ingredients according to the standardized recipe, with the intent of creating a product served only by that foodservice operation

The decision of whether to “make” or “buy” involves two major factors The first is, of course, product quality In general, if an operation can make a product that is superior to the one it can buy from a supplier, it should produce that item The second factor, product cost, is also a major issue for management It is possible that management determines that a given menu item can be made in house and that it is a superior product The cost of preparing that product, however, may be so great that it is simply not cost effective to do so Fortunately, convenience products are be- coming more quality driven and less expensive due to advances in technology and increased competition among the major food suppliers

Consider the situation that would arise if you managed a quick- service Mexican restaurant One of the items that you use is frijoles, or cooked pinto beans, which are seasoned and mashed Assume that you use 50 EP pounds of beans like this per day You can buy the beans in a can for 80 cents per pound Your cost per pound with the canned product includes only the cost of the beans In addition, you would incur the labor cost required to open the cans and heat the beans, as well as the cost of cooking fuel

If you were to consider making the frijoles from scratch, your food cost would go down to 36 cents per pound (the price of the dried pinto beans), a savings of over 50% The complete story, however, can only be viewed when you consider the labor required to produce the frijoles Fig- ure 7.5 details the hypothetical costs involved in the decision that you must make, assuming a usage of 50 pounds of product per day and a labor cost of $8.00 per hour to both cook the beans and clean up the production

process

As you can see in this example, you would experience a reduction in your cost of food if you made the frijoles from scratch but an increase in

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298 CHWPTER 7 MANAGING THE Cost oF LaBOR Fieure 7.5 Frijoles: 50 Pounds Cost of Convenience Component Product Cost of Scratch Product Beans $40.00 ($0.80/1b.) $18.00 ($0.36/1b.) Seasoning 0 2.00 Labor 8.00 (1 hour) 32.00 (4 hours) Fuel 1.40 4.40 Total Cost 49.40 5ó.40

the cost of labor, since your own employees must now complete the cook-

ing process In the case of frijoles, your decision may well be to purchase the convenience item rather than make it from scratch because the overall cost would be less

Management, often in consultation with kitchen production staff, must resolve make or buy decisions It is important to note, however, that these decisions affect both food and labor costs One cannot generally

achieve food cost savings without expending additional labor dollars Con-

versely, when a manager elects to buy rather than make an item from scratch, food costs tend to rise but labor costs should decline In general,

productivity in your operation will rise when you elect to buy, rather than

make from scratch, any item that you cannot produce efficiently This may

be due to specialized skills required, as is the case with some purchased bakery items, or it could simply be a case of your supplier having the tools and equipment necessary to do a time-consuming task at a great savings to you, such as the case in buying a prechopped, frozen onion

In many cases, convenience items will save you significant money by reducing your overall labor costs Productivity of your staff will increase It is important, however, that you not fall into the trap of electing to buy more convenience-type items, without reducing your labor expenditures When

that happens, you lose in terms of both high food costs and higher than required labor costs, thus causing your labor productivity ratios to decrease

Equipment

In most cases, foodservice productivity ratios have not increased in recent

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ours is a labor-intensive, not machine-intensive, industry In some cases, equipment improvements have made kitchen work much easier Slicers,

choppers, and mixers have replaced human labor with mechanical labor However, robotics and automation are not yet a part of our industry in any major way Nonetheless, it is critical for you to understand the importance of a properly equipped workplace to improve productivity This can be as simple as understanding that a sharp knife cuts more quickly and better than a dull one, or as complex as deciding which Internet service will be used to provide communication links to the 1,000 stores in a quick-

service restaurant chain In either case, management must ask itself the

fundamental question: “Am I providing my employees with the tools necessary to do their job effectively?” The key word in that question is “effectively” If the proper tools are provided, but they are at the wrong height, in the wrong location, or unavailable at the right time, the tools will not be used effectively Similarly, if the proper tools are provided but employees are not adequately trained in their use, productivity gains will not occur It is part of your job to provide your employees with the tools they need to do their jobs quickly and effectively

Service Level Desired

It is a fact that the average quick-service employee can serve more guests in an hour than the best server can at an exclusive French-style restau-

rant The reason for this is, of course, quite obvious In the quick-service situation, speed, not total service rendered, is of the utmost importance In

the French-style restaurant, service is to be more elegant and the total

service rendered of a much higher level Thus, when you vary service ley- els, you also vary employee productivity ratios In the past, foodservice managers focused very heavily on speed of service While that is still important today, many operators are finding that guests expect and demand

higher levels of service than ever before If this trend continues, one could expect that foodservice productivity levels would tend to go down In or-

der to prevent this from happening, foodservice operators will need to become very creative in finding ways to improve employee productivity in

other areas, say through training and improved morale, so that these “savings” can be used to provide the higher level of customer service de-

manded by today’s sophisticated foodservice consumer

Now that we have discussed some of the factors that impact employee productivity and what management can do to affect them, we return to the question of knowing “how many employees are needed” to ef-

fectively operate the foodservice unit As previously stated, the key to answering that question lies in developing productivity standards for the foodservice unit There are many measures of employee productivity Next, you will learn about the most popular of these and identify their

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300 CHAPTER 7 MANAGING THE Cost oF LABOR

measure for any unit you manage is the one that makes the most sense for

your unique operation FUN ON THE WEB!

Look up the following to explore the U.S Department of Labor Web

site

www.dol.gov Look up this site for government information regard-

ing labor issues and laws in the United States Review the “Find

It” list You will find information on things like minimum wage

and overtime pay, family and medical leave, employment discrimination, and much more! Also, click on “Employment Law Guide,” under the subheading “Compliance Assistance” to find the most recent and pertinent information on legal issues and employment

Measuring Current Labor Productivity

There are a variety of ways to measure productivity in the hospitality in-

dustry We examine five of them, as follows: Labor cost percentage

Sales per labor hour

Labor dollars per guest served Guests served per labor dollar Guests served per labor hour

Veen

Labor Cost Percentage

A very commonly used measure of employee productivity in the foodser-

vice industry is the labor cost percentage The labor cost percentage is computed as follows: Cost of Labor ‘Total'Sales Labor Cost %

It is important to realize that there are several ways to define cost of

labor You should select the one that makes the most sense for your own

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Measuring Current Labor Productivity 301

and total labor costs To measure productivity, you may elect, for example,

only to include payroll costs and not total labor costs In a like manner,

some managers elect to include the cost of management when computing their labor cost percentage, while others do not Again, the most important

point is that you should compute a labor cost percentage that makes sense

for your operation Remember, however, that when comparing your labor

cost percentage with those of other similar units, it is important that you

make sure both your unit and the one you are comparing use the same

formula for your computations If you do not, your comparisons will not

accurately reflect true differences between the two uni

Controlling the labor cost percentage is extremely important in the foodservice industry since it is the most widely used measure of productivity and, thus, is often used to determine the effectiveness of manage-

ment If labor cost percentage increases, management may be held ac- countable and penalized A labor cost percentage that increases too much

may result in management turnover, even if, as in many cases, the management did not want to turn over!

Fortunately, labor cost percentages are fairly easy to compute and

analyze Consider the case of Roderick, a foodservice manager in charge

of a table service restaurant in a year-round theme park The unit is popular and has a $20 per guest check average Roderick uses only payroll

(wages and salaries) when determining his overall labor cost percentage

because he does not have easy access to the cost of taxes and benefits provided to his employees These labor-related expenses are considered by Roderick’s supervisor to be noncontrollables and beyond Roderick’s im- mediate control Roderick has computed his labor cost percentage for each of the last four weeks using the labor cost percentage formula His supervisor has given Roderick a goal of 35% for the four-week period Roderick feels that he has done well in meeting that goal Figure 7.6 shows Roderick’s four-week performance

Roderick’s supervisor, Madeline, is concerned because she received

many comments in week 4 regarding poor service levels in Roderick’s unit As she analyzes the numbers in Figure 7.6, she sees that Roderick ex- ceeded his goal of a 35% labor cost in weeks 1 through 3, then reduced his

labor cost to 27.9% in week 4 While the monthly overall average of 35% is within budget, she knows all is not well in this unit Roderick elected to reduce his payroll in week 4, and yet it is clear from the negative guest comments that, at a 27.9% labor cost, service to guests suffers That is, too

few employees were on staff to provide the necessary guest attention Un-

fortunately, one disadvantage of using overall labor cost percentage is that

it can hide daily or weekly highs and lows As in Roderick’s case, labor

costs were too high the first three weeks, too low the last week, but ac-

ceptable overall Recall that the total labor cost of 35% indicates that, for

each dollar of sales generated, 35 cents is to be paid to the employees who assisted in generating those sales

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302 CHAPTER 7 MANAGING THE Cost oF LABOR

FieUaE 7.6 Roderick’s Labor Cost % Report

Week Cost of Labor Sales Labor Cost % 1 $ 7,100 $18,400 38.6% 2 8,050 21,500 37.4 3 7,258 19,100 38.0 4 6,922 24,800 272 Total 29,550 85,800 35.0

Using the labor cost percentage formula and the data from Figure 7.6,

we find the following: Cost of Labor _ TgisESilese = Labor Cost % or $29,350 = = 50 $83,800

Thus, management can use the 35% figure to measure employee produc-

tivity and, to some degree, management's skill The labor cost percentage

does, however, have some limitations as a measure of productivity Notice, for example, what happens to this measure of productivity if all Roderick’s employees are given a 5% raise in pay If this were the case, Roderick’s labor cost percentages for last month would have been as shown in Figure 7.7 Note that labor now accounts for 36.8% of each dollar sales value It is important to realize that Roderick’s workforce did not become less pro-

ductive because they got a 5% increase in pay Labor cost percentage varies

with changes in the price paid for labor When the price paid for labor in-

creases, labor cost percentage increases When the price paid for labor de-

creases, labor cost percentage goes down Because of this, labor cost per-

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Measuring Current Labor Productivity 303 Ficure 7.7 Roderick’s Revised Labor Cost % Report (Includes 5% Raise)

Original Cost Total Cost Labor

Week of Labor 5% Raise of Labor Sales Cost % 1 $ 7,100 $ 355.00 $ 7,455.00 $18,400 40.5% 2 8,050 402.50 8,452.50 21,500 39.3 3 7,258 362.90 7,620.90 19,100 39.9 4 6,922 346.10 7,268.10 24,800 29.5 Total 29,550 1,466.50 30,796.50 83,800 36.8

To see another example of the limitations of labor cost percentage as a complete measure of productivity, consider the effect on labor cost per-

centage of increasing the selling prices of your products Return to the

data in Figure 7.6 and assume that Roderick’s unit raised prices by

prior to the beginning of the month Figure 7.8 shows how an increase of

this size in selling price would affect the labor cost percentage

As demonstrated, increases in selling price (assuming no decline in

guest count or buying behavior) will result in decreases in the labor cost percentage Alternatively, lowering the selling price without increasing to-

tal revenue generally results in increased labor cost percentage While la-

bor cost percentage is easy to compute and widely used, it is difficult to

use as a measure of productivity over time, since it depends on labor dol-

lars spent and sales dollars received for its computation Even in relatively noninflationary times, wages do increase and menu prices are adjusted

upward Both activities affect the labor cost percentage, but not worker productivity In addition, institutional foodservice settings, which have no sales figures to report, find that it is not easily possible to measure labor

productivity using labor cost percentage, since they generally count guests

or meals served rather than sales dollars earned

Sales per Labor Hour

It has been said that the most perishable commodity any foodservice op-

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304 CHAPTER 7 MANAGING THE Cost oF LaBoR

Fieure 7.8 Roderick’s Revised Labor Cost % Report

(Includes 5% Increase in Selling Price)

Cost of Original 5% Selling Total Labor Week Labor Sales Price Increase Sales Cost Ÿ 1 $ 7,100 $18,400 $ 920 $19,320 36.7% 2 8,050 21,500 1,075 22,575 35.7 5 7,258 19,100 955 20,055 36.2 4 6,922 24,800 1,240 26,040 26.6 | Total 29,550 85,800 4,190 87,990 35.5

forever It cannot be “carried over” to the next day like an unsold head of lettuce or a slice of turkey breast Indeed, when one considers the items

that a foodservice operator sells as the result of both food products and labor added to those products, the importance of effectively using each labor hour paid for is very clear It is for this reason that some foodservice operators prefer to measure labor productivity in terms of the amount of

sales generated for each labor hour used The formula for computing this

measure of labor productivity is as follows: Total Sales Tuboriours teed = Sales per Labor Hour

Labor hours used is simply the sum of all labor hours paid for by management in a given sales period Consider Roderick’s labor usage as presented in Figure 7.9

Sales per labor hour ranged from a low of $19.50 in week 1 to a high

of $28.66 in week 4 Those operators who compute sales per labor hour tend to do so because they feel it is a better measure of labor productivity

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Fieure 7.9 Roderick’s Sales per Labor Hour

Week Sales Labor Hours Used Sales per Labor Hour 1 $18,400 945.5 $19.50 2 21,500 1,006.3 21.37 3 19,100 907.3 21.05 4 24,800 865.3 28.66 Total 83,800 3,722.4 22.51

words, increases and decreases in the price paid per hour of labor will not

affect this productivity measure On the negative side, however, sales per labor hour neglects to consider the amount paid to employees per hour to generate the sales A foodservice unit paying its employees an average of

$8.00 per hour could, using this measure of productiv have the same

sales per labor hour as a similar unit paying $10.00 for each hour of labor used Obviously, the manager paying $8.00 per hour has created a lower cost, yet equally productive workforce if the sales per labor hour used are the same in the two units

Sales per labor hour, however, may be useful in some situations Con- sider, for example, the decision you would face as the food and beverage di- rector of a private golf course/country club One of the services you would like to offer your members is beverage service while golfers are on the course The question you must answer is, “How many beverage should I place on the golf course at any given time of the day and week to adequately

serve the club’s members?” Too few beverage carts will result in thirsty, un-

served members, while too many carts will cause the club to incur excessive labor costs In this situation, you would want to monitor your beverage cart sales per labor hour and make determinations on the number of carts that you should use at various times to ensure cost-effective, quality service

It is relatively easy to compute total sales per labor hour used, because both the numerator and the denominator of the formula are generated on a very regular basis However, depending on the record-keeping

system employed, it may be more difficult to determine total labor hours used than total labor dollars spent This is especially true when large numbers of employees are salaried rather than hourly employees Re- member that the efforts of both salaried and hourly employees should be considered when computing a facility’s overall sales per labor hour used

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30ó CHRPTER 7 MANAGING THE Cost oF LaBoR

Labor Dollars per Guest Served

Had Roderick preferred, he might have measured his labor productivity in terms of the labor dollars per guest served The formula for this measure is as follows: Cost of Labor Guest Sexved 1 Labor Dollars per Guest Served

Using Roderick’s data, the labor dollars per guest served computation

would be as shown in Figure 7.10

In this example, the labor dollars expended per guest served for the four-week period would be computed as follows:

$29,550

4.190 ~ 9700

Using this measure of productivity, it is fairly easy to see why Roderick experienced guest complaints during the fourth week of operation Note that in the first three weeks, he “supplied” his guests with more than $7.00 of guest-related labor costs per guest served, but in the fourth week that amount fell to less than $6.00 per guest As is the case with labor cost per- FieuRE 7.10 Roderick’s Labor Dollars per Guest Served

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centage, labor dollars per guest served is limited in that it varies based on the price paid for labor

Guests Served per Labor Dollar

A variation on the formula of labor dollars per guest served is to reverse

the numerator and denominator to create a new productivity measure called guests served per labor dollar The formula for this measure of productivity is as follows: Guests Served ChstotLabor TY Guests Served per Labor Dollar Had Roderick wanted to, his productivity data could have been as presented in Figure 7.11

In this situation, Roderick served for the four-week average a total of 0.143 guests for each labor dollar expended It is important to note, however, that cost of labor in this case represents all the labor required to

serve the guests This includes cooks, servers, dishwashers, and Roderick

himself It is, therefore, not surprising that each dollar spent services less than one complete guest As a measure of productivity, guests served per

labor dollar expended has advantages It is relatively y to compute, and Fioure 7.11 Roderick’s Guests Served per Labor Dollar

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308 CHRPTER 7 MANAGING THE Cost 0E LRB0R

can be used by foodservice units, such as institutions, that do not routinely record dollar sales figures When the number of guests to be served stays fairly constant, it can be a good measure of productivity In addition, this

measure is relatively easy to compute because you are very likely to get

records on total guests served on a daily basis, as well as total payroll amounts each time payroll is paid

If the number of guests anticipated varies widely, this measure of productivity will vary widely also, despite management’s conscientious efforts at forecasting Of course, that is true of even the best measures of

labor productivity

Guests Served per Labor Hour

Guests served per labor hour is the last measure of productivity to be ex- amined Had Roderick elected to use this measure, he would compute it as follows: Guests Served iabonlionu Used cc Guests Served per Labor Hour

The formula of guests served per labor hour has neither sales figures

nor labor expense figures in its computation It is, thus, free either from variations due to changes in the price paid for labor or from fluctuations

due solely to changes in menu selling prices Guests served per labor hour

is a true measure of productivity, not a measure of either cost and pro-

ductivity or sales and productivity Guests served per labor hour is pow-

erful in its ability to measure productivity gains across time due to changes that are unrelated to selling price or wages It is extremely useful in comparing similar units in areas with widely differing wage rates or

selling prices and is, thus, popular with multilocation corporations comparing one operational unit to another It is also useful in comparing similar facilities with similar wages and selling prices, since it helps iden-

tify areas of weakness in management scheduling, employee productivity, facility layout and design, or other factors that can affect productivity

Had Roderick elected to evaluate his workforce productivity through the use of the guests served per labor hour formula, his data might have looked as shown in Figure 7.12

As the data demonstrate, Roderick’s guests served per labor hour fig-

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Meosuring Current Labor Productivity 509 Figure 7.12 Roderick’s Guests Served per Labor Hour

[ Guests Served per

Week Guests Served Labor Hours Used Labor Hour 1 920 945.5 0.975 2 1,075 1,006.3 1.068 3 955 907.3 1.053 4 1,240 865.3 1.455 Total 4,190 3,722.4 1.126

Those managers who use guests served per labor hour as a measure

of productivity generally do so because they like the focus of emphasizing

service levels and not just reducing costs It may be more difficult and time consuming to compute this measure of productivity, however, be-

cause you must compute the number of labor hours used, as well as make

decisions on how to define a guest For example, in a café, a guest who or-

ders a cup of coffee is indeed a guest but requires much less service than

one who consumes a full meal Unless you decide differently, however, the guests served per labor hour productivity measure treats these two

guests in the same manner

Since it is widely believed that work really does expand to meet (and exceed) the number of people available to do the job, measures of productivity must be available to guide management in making productivity

assessments Figure 7.13 summarizes the five productivity measures discussed in this text and lists some advantages and disadvantages associated with each Each formula for measuring labor productivity has limitations,

advantages, and disadvantages You may select one or more of the measures described previously or create your own measure In most cases, it is

recommended that you monitor the labor cost percentage and at least one

other measure of productivity if you are serious about controlling labor- related expenses

Six-Column Daily Productivity Report

Many operators, upon selecting a productivity measure, prefer to compute

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Fieure 7.13 Productivity Measures Summary

Measurement Advantages Disadvantages

Labor Cost % = 1 Easy to compute 1 Hides highs and lows Cost of Labor

Total Sales 2 Most widely used 2 Varies with changes in price of labor

3 Varies with changes in menu selling price Sales per Labor Hour =| 1 Fairly easy to compute 1 Ignores price per hour

Total Sales paid for labor

Labor Hours Used 2 Does not vary with

changes in the price 2 Varies with changes in of labor menu selling price Labor Dollars per 1 Fairly easy to compute 1 Ignores average sales Guests Served =

Cost of Labor 2 Does not vary with Guests Served changes in menu selling

price 2 Varies with changes in the price of labor per guest and, thus, total sales

3 Can be used by non- revenue-generating units

Guests Served per 1 Fairly easy to compute 1 Ignores average sales

Labor Dollar = per guest and, thus,

Guests Served 2 Does not vary with total sales

Cost of Labor changes in menu selling

price 2 Varies with changes in the price of labor 3 Can be used by non-

revenue-generating units

Guests Served per 1 Can be used by non- 1 Time-consuming to Labor Hour = revenue-generating units produce

Guests Served

Labor Hours Used 2 Does not change due to | 2 Ignores price paid for changes in price of labor or menu selling

price

Emphasizes serving guests rather than

reducing costs labor

Ignores average sales

per guest and, thus,

total sales

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can easily be done by using a six-column form similar to the one intro- duced in Chapter 3

A six-column form for Roderick’s restaurant sales and labor cost in week 1 is presented in Figure 7.14

To show how it could be used to maintain any productivity measure, consider the labor cost percentage (Cost of Labor/Total Sales = Labor

Figure 7.14 Six-Column Labor Cost %

Unit Name: Roderick’s Date: 1/1-1/7

Cost of Labor Sales Labor Cost %

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312 cHapTeR 7 MANAGING THE CosT oF LaBor

Cost %) Amounts in the Today columns are divided to create the La-

bor Cost % Today column, just as the amounts in the To Date columns are

divided to create the Labor Cost % To Date column

Roderick’s daily labor cost percentage during week 1 ranged froma

low of 31.2% (day 7) to a high of 47.8% (day 2) The labor cost percentage for the week was 38.6% Again, you can see the effect of averaging highs

and lows when using measures of labor productivity Any of the five measures of labor productivity can be calculated on a daily basis using a mod- ification of the six-column form located in Appendix B of this book Figure 7.15 details the method to be used to establish six-column forms for each

of the five productivity measures presented in this chapter When using

the six-column report, it is important to remember that the To Date column value, on any given day, is always the sum of the values of all the preceding Today columns, including the current day

Determining Costs by Labor Category

Many operators find that a single measure of their labor productivity is in-

sufficient for their needs Consider the case of Otis, the owner and operator of a restaurant called the Squirrel Flats Diner, which services both backpacking tourists and loggers taking a break from work at the nearby

logging camp Otis’s sales last month were $100,000 His labor costs were

$30,000 Thus, his labor cost percentage was 30% ($30,000 / $100,000 = 0.30) Otis, however, knows more about his labor cost percentage than the overall number alone tells him Figure 7.16 demonstrates the method Otis

uses to compute his overall labor cost percentage

Note that Otis divides his labor expense into four distinct labor sub-

categories Production includes all those individuals who are involved with

the actual preparation of the food products Otis sells Service includes the servers and cashiers involved in delivering the products to the guests and receiving payment for these products Sanitation consists of individuals

who are responsible for warewashing and after-hour cleanup of the estab-

lishment Management includes the salaries of Otis’s two supervisors By establishing four labor categories, Otis has a better idea of where his labor dollars are spent than if only one overall figure had been used Just as it is often helpful to compute more than one food cost percentage,

it is helpful to calculate more than one labor cost percentage Notice that

the sum of Otis’s four labor cost percentage subcategories equals the

amount of his total labor cost percentage:

12% + 9% + 3% + 6% = 50%

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